Ready Your Cash: Private Real Estate Might Bottom Out This Year

Investment windows like this one only happen every 10 or 20 years — and 2024 will be one of the best vintages so far this century, says Cohen & Steers.


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A great time to buy commercial real estate is upon us, argues Cohen & Steers, the $84 billion asset manager that decades ago was among the first firms to focus on listed real estate investment trusts, in a report published Monday.

The number of commercial real estate deals tanked in 2023 and the prices of properties fell, especially offices. But huge swaths of the commercial real estate market still have some pain coming. A record amount of commercial real estate debt is maturing during the next four years, which means more properties will become distressed and put up for sale — a fortunate circumstance for real estate investors.

The health of commercial real estate is reflected first in publicly traded REITs, and they have foreshadowed opportunity, Cohen and Steers says. After peaking in late 2021, listed REITs fell more than 30 percent and bottomed out in the fourth quarter last year. Meanwhile, private real estate funds, which are valued quarterly unlike their public peers, fell less than 20 percent during the same period. Eventually, private funds will reflect losses in the public market. Cohen & Steers expects private real estate prices to drop another 5 to 10 percentage points throughout 2024 and possibly 2025.

Falling prices, coupled with the expectation that inflation will keep falling and the Federal Reserve is going to cut its benchmark interest rate, will make this year a strong vintage for the private market, James Corl, executive vice president and head of private real estate at Cohen & Steers, told Institutional Investor.

Investment windows like this one only happen every 10 or 20 years. “All the smart people in the real estate industry are looking around saying: yeah, hey, these vintages we’re moving into are going to be good ones to invest in,” Corl said.

According to the report, the “magnitude” of the decline in private real estate has only “occurred twice in the past 40 years,” after the savings and loan debacle and after the global financial crisis.

Not all types of properties are expected to have the same recovery. Older properties in coastal gateway markets will be hit hardest but they are less desirable to own. Meanwhile, newer properties with a lot of amenities in sunbelt locations will have the most robust rebound, according to the Cohen & Steers report. The aging Millennial generation is driving that trend.

The best companies and jobs are moving. Technology has enabled firms to compete outside cities like New York and San Francisco and more employees are working remotely. Millennials are moving away from the coasts and Corl says that migration is already proving to be transformational. He likened it to the construction of the interstate highway system in the 1950s and 1960s. Highways and the emergence of the suburbs had a profound impact on the fundamentals of real estate prices and technology today will, too. “I think we’re in the early innings of the same type of thing,” he said.

Those demographic and geographic trends have Cohen & Steers interested in newer retail and housing properties.

Open-air, necessity-driven shopping centers are experiencing improved occupancy and rents — customers want to be able to walk to the barber, dry cleaner, grocery store, and other businesses.

Industrial properties were booming for years but their prices remain elevated and they are entering a new cycle that is generally less favorable to Cohen & Steers. “A supply glut, slower leasing, declining occupancy, and decelerating rental rate growth are a recipe for contraction,” the firm’s report says.

Offices will continue to go through a tough phase this year and even beyond. Many of those properties were built decades ago to accommodate baby boomers and are ill-suited for the workforce today and in the future. Many commercial real estate firms are sitting on long-held portfolios heavily invested in office space that has been challenged since the pandemic. Companies and employees that have returned to working in an office are seeking newer and better ones.

“The bottom line about real estate is this, real estate is a cyclical business. And it really just boils down to the old Warren [Buffett] adage, be greedy when others are fearful and fearful when they’re greedy,” Corl said. “A lot of times, the best arbitrage opportunity is not the difference between buying asset A and asset B. It’s a difference between buying asset A at the bottom of the market versus buying asset A at the top of the market.”